The Industrial Organization of Markets with Two-Sided Platforms

37 Pages Posted: 27 Oct 2005 Last revised: 16 Sep 2022

See all articles by David A. Evans

David A. Evans

U.S. Environmental Protection Agency (EPA) - National Center for Environmental Economics

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management

David S. Evans

Global Economics Group; Market Platform Dynamics

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Date Written: September 2005

Abstract

Two-sided platforms (2SPs) cater to two or more distinct groups of customers, facilitating value-creating interactions between them. The village market and the village matchmaker were 2SPs; eBay and Match.com are more recent examples. Other examples include payment card systems, magazines, shopping malls, and personal computer operating systems. Building on the seminal work of Rochet and Tirole (2003), a rapidly growing literature has illuminated the economic principles that apply to 2SPs generally. One key result is that 2SPs may find it profit-maximizing to charge prices for one customer group that are below marginal cost or even negative, and such skewed pricing pattern is prevalent, although not universal, in industries that appear to be based on 2SPs. Over the years, courts have also recognized that certain industries, notably payment card systems and newspapers, now understood to be based on 2SPs, are governed by unusual economic relationships. This chapter provides an introduction to the economics of 2SPs and its application to several competition policy issues.

Suggested Citation

Evans, David A. and Schmalensee, Richard and Evans, David S., The Industrial Organization of Markets with Two-Sided Platforms (September 2005). NBER Working Paper No. w11603, Available at SSRN: https://ssrn.com/abstract=804249

David A. Evans (Contact Author)

U.S. Environmental Protection Agency (EPA) - National Center for Environmental Economics ( email )

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Richard Schmalensee (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

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David S. Evans

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Market Platform Dynamics ( email )

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